Proposal for a Global Taxation System
– DAGTVA truth table –
DAGTVA® – Distribution of MNE profits
|No.||Problems exposed, requests, constraints and subjects||Origin||Pg||Li||Doc|
|36||Solution for emerging and developing countries||Pillar 1||7||46||RBSpg|
Quote : Moreover, there seems to be agreement that the arm’s length principle is becoming (RBRpc – RBNac) an increasing source of complexity and that simplification would be desirable (PLSsy – RLSrl) to contain the increasing administration and compliance costs of trying to apply it. Thus, an “administrable” solution is essential, especially for emerging and developing countries (RBSpg). And a simple system will lower the risks of disputes, which currently endanger the cohesion of the international tax system.
In the RLNet page about the arm’s length principle we can read:
« By analyzing the new DAGTVA transfer pricing calculation , we realize that the « reference transaction » that would determine a market price if everything were produced by a local company, while respecting the arm’s length principle, requires the MNE to have a permanent establishment in the market State. »
This new DAGTVA transfer pricing calculation is transformed into a control tool available to the tax authorities who can automatically verify whether the arm’s length principle is respected transaction by transaction, the tax authorities of the two States in question being continuously communication and therefore both can ensure that this arm’s length principle is respected.
You can check it by opening the slide show in reference.
- Authorization to continue the transaction (slide 14), the exporting company must normally be registered(*) with its tax authorities so that they give the export authorization in compliance with the agreement of the OECD article 7 ,
- When this authorization is given, a copy for the first information is sent to the tax authorities of the market State in order they analyze the transaction put in reserve for a next treatment(1).
- These should expect a purchase declaration (in B²B) which will occur on slide 15,
- Declaration of equality of controlled declarations in slide 16,
- Automatic exchange of BEPS information between the two States and production of export / import bar codes in slide 22,
(*) – But it is possible that sale is authorized by the buyer’s State in special circumstances where the seller would not have a physical presence. The main thing for this market State is to be informed the existence of the transaction which will allow its to receive the sale taxes as specified below by the production of import bar codes in slide 22,
(1) – In a B²C transaction, it is this process which makes it possible to validate the bar codes of the import documents which will authorize this importation but above all it is this process which allows the market state to know of the transaction.
In the RBIns section on the desired simplicity we can read:
The fact is, with DAGTVA, no new tax right contributes to the simplification of the hoped international tax system (related pages: RLSrl , PLSsy , RBAsm, RBAas , RBAps).
Regarding the development of a manageable solution is essential, in particular for emerging and developing countries the subject has been dealt with in the RLEmo section reproduced below:
“Poorest economies often have no other options than to import products that they cannot, for various reasons, deliver by domestic productions to their consumers. With the digital economy, this ‘facility’ to import is exacerbated by the development of communication means linked to the Internet and mobile telephony. It followed, for these poor countries, a flight of the weak wealth linked to cross-border payments, with this recurring problem of financing imports all the more significant in these circumstances.«
The Wayfair Sale Tax, following the decision 17-494 Wayfair Inc. by the US Supreme Court, brings a fraction of the solution to the financing of imports by the return of a portion of sale taxes applied in the production/distribution State. It is in this way that the Word Single Taxation (W.S.T.) must seek its solution. As the current international tax system functions poorly, this study will provide a new structure based on the structure of this WSTAX (1), added to two elements: the first of which will provide proof that the new DAGTVA transfer pricing calculation will considerably rebalance modest economies and the second with the new distribution system for international aid, based on transactional balances, to provide the essential complement to what WSTAX cannot fill.
(1) Wayfair Sale Tax transformed into Wayfair State TAX – either: WSTAX.
Indeed and in all cases of application of this law, it will be only a part of the sales taxes which will be returned to the market State, for the simple reason that in a production / distribution State, the sales tax sales corresponds to the production tax at the final stage of the sale (the Output VAT in the VAT system). If all this production tax were returned to the market state, the production state would no longer have indirect income on its exported productions, although this was often seen in the no-taxation of exports. You will see later in the study that if we are not going to return everything to the market State, the latter, through its tax authorities, will have with DAGTVA, a perfect knowledge of the ins and outs of the transaction as a function of fiscal variables in the two states.
As a result, an obvious imbalance in the commercial and fiscal consequences will therefore have to result in actions which will be detailed in the DAGTVA transfer pricing calculations because this imbalance can come from two sources, on the one hand the commercial aggressiveness of the company which will be largely constrained, on the other hand the actions of ‘non-cooperative’ states which will be ‘punished’ instantly! As has just been specified in this section, you will see that the room for maneuver of both parties will be greatly constrained, leading to a balance in international economic development by putting an end to the anarchy observed today.
To conclude this section devoted to modest economies, we note that in a country in this situation, direct and indirect taxation is difficult to apply because it directly impacts an often low local purchasing power. To respond to this difficulty, the DAGTVA system is based on the calculation of a transfer price defining the value of a theoretical market price adapted to a local sale of the existing equivalent product or which could exist by comparison, thus respecting an ethical trade and the arm’s length principle. The margin of action of the MNE / State couple in each of the two States will be constrained as a result, but will benefit a development regulation beneficial to the modest economy by prohibiting inadmissible drifts.
One can even consider applying the sales tax refund at the higher rate of a production state (not covered in the presentation), which may help a country with a modest economy to receive sales tax from a producer. higher level than what he himself could have taxed, simply because it is difficult to apply a high or suitable level of indirect taxation on consumption in a country where the purchasing power of consumers is low .